Setting up a propoerty limited company to save tax

ahfh1

Hi,

I have my regular day job which has just crept into the higher rate tax bracket (40%).

I also have 2 properties that I rent out, on which the profits will be added to my income and also therefore be subject to 40% income tax.

I was thinking of setting up a limited company for the 2 properties. The advantage of this is the rent will be subject to lower corporation tax (40%) instead of income tax (20%).

I won't be using the rent for anything other than paying off the mortgage and allowable expenses. The remainder will sit in the ltd. company's bank account.

Is this a good idea and are there any pitfalls?

agrinnall

Well, surely one issue straight off is that because the limited company would own the properties it would need to borrow the money to pay you so that you can repay the mortgages you have taken out personally, and I'm not sure how easy it will be for a newly formed company to obtain such a loan.

chrismac1

For smaller properties this is almost certainly not worth it, due to the fees involved in setting up the company and getting the deeds transferred into the company name. You should be OK for the loans if you are guaranteeing them, but expect bank charges and a great many daft questions from the bank which is par for the course these days.

Other issues you probably have not considered include capital gains tax. You have an annual exempt band of 11,000. Your company has an annual exempt band of zero.

chrismac1

A better idea is a personal pension payment to get you back into the 20% bracket.

CLAPTON

for the avoidance of doubt, your salary in the 'day job' is now in excess of £41,865 net after any pension contributions?

zygurat789

CLAPTON wrote: »

for the avoidance of doubt, your salary in the 'day job' is now in excess of £41,865 net after any pension contributions?

This figure should also include any BiK which have reduced the tax code.

pcgtron

Silly Idea with 2 properties. Not worth it with all the hoops and charges it would cost.